23 March 2020

Accounting implications of the effects of

coronavirus
At a glance
The coronavirus outbreak has developed rapidly in 2020, with devastating consequences for
communities across the globe. Measures taken to contain the coronavirus (‘COVID-19’ or ‘the virus’)
have affected economic activity, which in turn has implications for financial reporting. While we realise
financial reporting is of course lower down the priority list during this period of unprecedented change,
we've looked at the impact of the virus on the financial statements of entities whose business is
affected. This document contains new “no action” relief from ASIC for the AGM season of 31
December 2019 year end entities, as well as guidance for those whose financial statements are
nearing completion. The majority of this document focuses on the adjusting events to financial
reports for years ended ​after​ 31 December 2019. There are broad implications including: the ability to
forecast cash flows and the related going concern assessment; debt covenants; hedging and
financing; impairment of assets; onerous contracts; and recognition of revenues.

Background

COVID-19 has had an immediate impact on industries such as tourism, transport, retail, education
and entertainment. It has begun affecting supply chains and the production of goods throughout the
world. While some industries such as health and groceries have high demand and supply chain
issues, in others lower economic activity is likely to result in reduced demand for many goods and
services. Financial services entities such as banks that lend to affected entities, insurers that provide
protection to affected individuals and businesses, and funds or other investors that invest in affected
entities are also likely to be affected.

Management should carefully consider the impact of the COVID-19 on both interim and annual
financial statements. The impact could be significant for many businesses. The implications, including
the indirect effects from lower economic activity, should be considered by all entities, not just those in
the countries most significantly affected.
For 31 December financial reporters AGM season

An entity’s stakeholders will be interested in the impact of the virus and the measures taken to
contain its spread. Continuous disclosure requirements should be considered, and forward looking
statements made at previous results presentations may need to be reconsidered.

ASIC has recently announced it will not take action against any company that misses its AGM
deadline for 31 December year ends by 2 months, which means an extension from 31 May to 31 July
2020. ASIC will also take no action if companies hold hybrid (physical and online) or virtual (online)
AGMs. This is conditional on entities providing shareholders with a reasonable opportunity via
technology to participate as per section 249S of the ​Corporations Act 2001​, including;
● being able to ask questions of management and the auditor, and
● voting occurring via a poll rather than a show of hands.
Entities will need to consider if their constitution allows a virtual AGM. ASIC is unable to change the
Corporations Act​ so a “no action” approach is the best they can do. Please refer to ASIC’s guidance
20-068MR for further information.

For as yet unsigned 31 December 2019 Financial reports

While in many cases the effects of COVID-19 are a non-adjusting subsequent event for 31 December
2019, the directors and auditors will still need to consider, ​at the date of signing the report​, if the
entity will be able to continue as a going concern for a period of at least the next 12 months. For
some entities, due to the uncertainty, it may be difficult to accurately forecast cash flows for a 12
month period. In such situations the entity will need to consider if the going concern basis is still
appropriate. Even where appropriate, there may be a need for additional disclosure for readers to
understand the entity’s financial position and significant judgements applied​. ​ Where there is
uncertainty, the auditor may need to consider if the audit opinion needs to emphasise this.

For Reporting periods ​ended after​ 31 December 2019

Non-financial assets

Impairment under AASB 136 Impairment of assets

Many businesses will have to consider the potential impairment of non-financial assets. AASB 136
Impairment of Assets​ requires that goodwill and indefinite lived intangible assets are tested for
impairment at least every year and other non-financial assets whenever there is an indicator that
those assets might be impaired. Temporarily ceasing operations, suffering an immediate decline in
demand or being forced to reduce prices and profitability are clearly events that might indicate
impairment. However, the impact of reduced economic activity and lower revenues are likely to affect
many entities in this COVID-19 environment and might also indicate impairment.

Management should consider whether:

● COVID-19, the measures taken to control it and their broader impacts on the economy are
likely to reduce future cash inflows or increase operating and other costs for the reasons
described above
● these events, including for example a fall in an entity’s share price such that market
capitalisation is lower than carry value, are an indicator of impairment requiring that goodwill
and indefinite lived intangible assets are tested outside of the annual cycle or that other assets
are tested
 ● the assumptions and cash flow forecasts used to test for impairment should be updated to
reflect the potential impact of COVID-19
● budgets, forecasts and other assumptions from an earlier impairment testing date that were
used to determine the recoverable amount of an asset should be revised to reflect the
economic conditions at the balance sheet date, specifically to address increased risk and
uncertainty
● an expected cash flow approach (multiple probability-weighted scenarios) might be a better way
to estimate recoverable amount than a single predicted outcome to capture the increased risk
and uncertainty. The potential impact of measures taken to control the spread of the virus could
be included as additional scenarios in an expected cash flow approach. There might be a range
of potential outcomes considering different scenarios, and
● the factors used to determine the discount rate, however the recoverable amount is determined,
should be revised to reflect the impact of the virus and the measures taken to control it (eg. the
risk free rate, country risk and asset risk). The discount rate used in a single predicted outcome
approach should be adjusted to incorporate the risk associated with COVID-19. Management
should ensure that appropriate risk is reflected in either the cash flows or the discount rate.
Management should also consider whether their long-term growth assumptions remain
appropriate.

Whichever approach management chooses to reflect the expectations about possible variations in the
expected future cash flows, the outcome should reflect the expected present value of the future cash
flows. When fair value is used to determine the recoverable amount, the assumptions made should
reflect market participant assumptions.

Disclosures

The disclosure requirements in AASB 136 are extensive. Management should consider specifically
the requirements to disclose assumptions and sensitivities in the context of testing goodwill and
indefinite lived intangible assets.

Management should also consider the requirements in AASB 101 ​Presentation of Financial
Statements​ to disclose the major sources of estimation uncertainty that have a significant risk of
resulting in a material adjustment to the financial statements in a subsequent period.

Associates and joint ventures accounted for using the equity method

Interests in joint ventures and associates accounted for under the equity method are tested for
impairment in accordance with AASB 128 ​Investments in Associates and Joint Ventures​.
Management should consider whether the impact of COVID-19 and the measures taken to control it
are an indicator that an associate or joint venture is impaired.

Interests in joint ventures and associates that are in the scope of AASB 9 ​Financial instruments​ are
subject to that standard’s impairment guidance.
Inventories

It might be necessary to write-down inventories to net realisable value. These write-downs could be
due to reduced movement in inventory, lower commodity prices, or inventory obsolescence due to
lower than expected sales.

AASB 102 ​Inventories​ requires that fixed production overheads are included in the cost of inventory
based on normal production capacity. Reduced production might affect the extent to which overheads
can be included in the cost of inventory.

Entities should assess the significance of any write-downs and whether they require disclosure in
accordance with AASB 102.

Property, plant and equipment

The virus and measures taken to reduce transmission might mean that property, plant and equipment
is under-utilised or not utilised for a period or that capital projects are suspended. AASB 116
Property, plant and equipment​ requires that depreciation continues to be charged in the income
statement while an asset is temporarily idle. For assets that are still being constructed, AASB 123
Borrowing costs​ requires that the capitalisation of interest is suspended when development of an
asset is suspended.

Financial instruments and leases

Impairment of assets under AASB 9 Financial instruments

Where an entity has any financial assets that are in the scope of AASB 9’s expected credit loss model
(ECL) management should consider the impact of COVID-19 on the ECL. Instruments to be
considered include loans; trade and other receivables; debt instruments not measured at fair value
through profit or loss; contract assets; lease receivables; financial guarantees; and loan
commitments.

Management should consider the impact of COVID-19:

● whether the ECL is measured at a 12-month or lifetime ECL. If the credit risk (risk of default)
has increased significantly since initial recognition, the ECL is measured at the lifetime ECL
rather than the 12-month ECL (except for assets subject to the simplified approach, such as
short term receivables and contract assets, which are always measured using lifetime ECL),
and
● on the estimate of ECL itself. This will include all of the following:
○ the credit risk (risk of default). For example, this may increase if the debtor’s business
is adversely impacted by COVID-19 such as closures, shutting down operations or
decline in demand,
○ the amount at risk if the debtor defaults (exposure at default). For example, debtors
affected by COVID-19 may draw down on existing unused borrowing facilities, or cease
making discretionary over payments, or take longer than normal to pay resulting in a
greater amount at risk, and
○ the estimated loss as a result of default (loss given default). For example, this may
increase if COVID-19 results in a decrease in the fair value of a non-financial asset
pledged as collateral.
Even when a borrower is expected to repay all amounts owed but later than contractually required
(eg. a payment holiday), there will be a credit loss if the lender is not compensated for the lost time
value of money.

AASB 9 requires that forward-looking information (including macro-economic information) is

considered both when assessing whether there has been a significant increase in credit risk and
when measuring expected credit losses. Forward-looking information might include additional
downside scenarios related to the spread of COVID-19. This might be achieved by adding one or
more additional scenarios to the entity’s existing scenarios, amending one or more of the existing
scenarios (eg. to reflect a more severe downside(s) and/or to increase their weighting), or using an
‘overlay’ if the impact is not included in the entity’s main expected credit loss model.

The government might ask local banks to support borrowers affected by COVID-19. This could be in
the form of payment holidays on existing loans or reduced fees and interest rates on new loans.
Entities giving such support should consider the impact on their financial statements, including
whether:

● payment holidays indicate the affected loans have suffered a significant increase in credit risk
or default, and therefore moved to stage 2 or 3 of the ECL model, and
● reduced fees or interest rates on new loans indicate that the loans are not made at a market
rate.

Management should consider the need to disclose the impact of the virus on the impairment of
financial assets. For example, disclosures required by AASB 7 ​Financial instruments: Disclosures​ that
might be affected include how the impact of forward looking information has been incorporated into
the ECL estimate, details of significant changes in assumptions made in the reporting period, and
changes in the ECL that result from assets moving from stage 1 to stage 2.

Fair value measurement (AASB 13)

The fair value of an asset or liability at the reporting date should be determined in accordance with
the applicable IFRS standards. When fair value is based on an observable market price, the quoted
price at the reporting date should be used. The fair value of an asset reflects a hypothetical exit
transaction at the reporting date. Changes in market prices after the reporting date are therefore not
reflected in asset valuation.

The volatility of prices on various markets has increased as a result of the spread of COVID-19. This
might affect the fair value measurement of a financial instrument either directly - if fair value is
determined based on market prices (eg. in case of shares or debt securities traded on an active
market) or indirectly (eg. if a valuation technique is based on inputs that are derived from volatile
markets).

Counterparty credit risk and the credit spread that is used to determine fair value might also increase;
for example, in cases when the counterparties are experiencing declines in business and related
financial difficulty. However, the impact of actions taken by governments to stimulate the economy
might reduce risk free interest rates.

The increased price volatility often results in widening of bid/ask spreads; therefore, the entity might
consider how this impacts the accuracy of valuation models based on mid-market pricing.
A change in the fair value measurement affects the disclosures required by AASB 13 ​Fair value
measurement​, which requires entities to disclose the valuation techniques and the inputs used in the
fair value measurement as well as the sensitivity of the valuation to changes in assumptions. It might
also affect the sensitivity analysis required for recurring fair value measurements categorised within
level 3 of the fair value hierarchy. The number of instruments classified as level 3 might increase.

Hedge accounting (AASB 9 and AASB 139)

Management should consider the impact of COVID 19 on hedge accounting, including whether the
entity continues to meet the criteria for hedge accounting. For example:

● The current unprecedented level of uncertainty might require management to reassess whether
forecast transactions in a cash flow hedge are still considered to be ‘highly probable.’ Hedge
accounting is discontinued when the hedged forecast transaction is no longer highly probable.
For example, forecasted sales or purchases may no longer be highly probable if the entity is
temporarily reducing or shutting down operations as a response to the COVID-19 measures or
there is an expected decrease in demand.
● If cash flow hedge relationships are discontinued, management should assess whether the
forecast transactions are still expected to occur (even though it is no longer highly probable). If
the forecast transaction is still expected to occur, the cash flow hedge reserve should remain in
equity and be recycled to profit or loss in the same period when the hedged item affects the
profit or loss. Otherwise, the hedge reserve should be recycled immediately. While the hedged
item might still be reasonably expected to occur to a particular level, significant business
closures and decline in demand might indicate that the entity won’t be able to realise the
hedged item to the extent as originally anticipated.
● Increasing credit spreads as a consequence of the economic turmoil caused by COVID-19
might cause a significant portion of fair value changes of a hedging instrument to represent the
sole charge for credit risk. In this case, the related hedge relationship might need to be
discontinued due to breaching the effectiveness requirements of AASB 9 (credit risk should not
dominate the value changes that result from that economic relationship).
● Even if the hedge relationship is not discontinued for reasons discussed above, management
should still consider the impact on measuring ineffectiveness. Fair value changes of hedging
instruments triggered by increasing credit spreads, currency basis spreads or other
adjustments such as liquidity surcharge are likely to cause ineffectiveness as these factors are
generally not reflected in the measurement of hedged items. Consequently, the entity might
experience additional volatility in the profit or loss.

Modifications of financial instruments (AASB 9)

Management should consider the impact of the changes to the terms of any borrowing or loan
agreements, perhaps because of actions taken by the government or the renegotiation of terms with
the lender. Examples of changes in terms might include:

● extension of the contractual maturity

● re-profiling of contractual cash flows (eg. payment holidays)
● decrease in the contractual interest rate
● variability in cash flows based on particular trigger events, or
● extension of the facility’s notional amount.
Both parties (borrower and lender) should apply the guidance in AASB 9 as well as their existing
accounting policies for modifications of financial instruments to determine the impact of the change in
terms, including those for determining whether the change to the terms results in derecognition of the
financial instrument and, if not, for recognising a modification gain or loss.

If the modification results in derecognition of the original instrument and recognition of a new one,
management should consider accounting consequences related to initial recognition of a financial
instrument such as:

● assessing whether embedded derivatives need to be recognised separately in case of financial

liabilities
● assessing whether the cash flows meet the ‘solely payments of principal and interest’
conditions in case of financial assets, and
● whether the new loan is considered 'originated credit impaired’ for the purposes of ECL
measurement, which might be relevant for modification of loans when the borrower is in
significant financial difficulty.

Other potential impacts on financial instruments

In addition to the above, management should also consider the impact on:

● Convertible, redeemable or prepayable instruments:​ The currently volatile markets might create
favourable circumstances for issuers or holders of convertible, redeemable or prepayable
instruments to exercise the options sooner than originally anticipated as the options might
become significantly 'in the money'. Management should assess the risks related to these
options embedded in financial assets or liabilities in terms of financial reporting implications,
liquidity or capital risk management. For example, decreasing share prices might trigger
conversion of a convertible loan based on a variable number of shares. Also, decreasing
interest rates might compel a borrower to prepay existing debt and refinance.
● Disclosure requirements:​ For example, AASB 7 requires disclosure of defaults and breaches of
loans payable, of gains and losses arising from derecognition or modification, and of any
reclassification from the cash flow hedge reserve that results from hedged future cash flows no
longer being expected to occur.

Additional disclosures might also be required. For example, AASB 7 requires disclosure of defaults of
loan covenants and breaches of loans payable, and of gains and losses arising from derecognition or
modification.

Leases (AASB 16)

Lessees will need to consider if their right of use assets are impaired and the depreciation element
accelerated. A lessor and a lessee might renegotiate the terms of a lease as a result of COVID-19 or
a lessor might grant a lessee a concession of some sort in connection with lease payments (eg.
temporary rent relief). In some cases, a lessor might receive compensation from a local government
as an incentive to offer such concessions. Both lessors and lessees should consider the requirements
of AASB 16 ​Leases​ and whether the concession should be accounted for as a lease modification and
spread over the remaining period of the lease. Lessors and lessees should also consider whether
incentives received from a local government are government grants.
Subsidiaries, associates, joint ventures and investment properties measured at fair value

The fair values of investments in subsidiaries, associates and joint ventures might be affected by
equity market volatility. The starting point for valuations of listed companies is the market prices at the
reporting date.

Entities are required to disclose changes in business or economic circumstances that affect the fair
value of investment entities or investments in associates and joint ventures carried at fair value under
AASB 9.

Investment property valuations could also be affected; for example, where rental yields are lower than
they were historically.

Revenue recognition

An entity’s sales and revenue might decline as a result of the reduced economic activity following the
steps taken to control the virus. This would need to be considered in cash flow forecasting and
accounted for when it happens.

There could also be an effect on the assumptions made by management in measuring the revenue
from goods or services already delivered and, in particular, on the measurement of variable
consideration. For example, reduced demand could lead to an increase in expected returns,
additional price concessions, reduced volume discounts, penalties for late delivery or a reduction in
the prices that can be obtained by a customer. All of these could affect the measurement of variable
consideration and the likelihood that these amounts may vary in the future. AASB 15 ​Revenue from
contracts with customers ​requires that variable consideration is recognised only when it is highly
probable that amounts recognised will not be reversed when the uncertainty is resolved.

Management should reconsider both its estimate of variable consideration and whether the
recognition threshold is met.

AASB 15 is applied only to those contracts where management expects its customer to meet its
obligations as they fall due. Management might choose to continue to supply a customer even when it
is aware that the customer might not be able to pay for some or all the goods being supplied.
Revenue is recognised in these circumstances only when it is probable that the customer will pay the
transaction price when it is due net of any price concession.

AASB 15 requires that an entity disclose information that allows users to understand the nature,
amount, timing and uncertainty of cash flows arising from revenue. This might require, for example,
information about how an entity has applied its policies taking into account the uncertainty that arises
from the virus, the significant judgments applied (eg. whether a customer is able to pay), and the
significant estimates made (eg. in connection with variable consideration).

Government assistance

Governments around the world have reacted to the impact of COVID-19 with a variety of measures,
including tax rebates and holidays and, in some cases, specific support for businesses in order that
those businesses are able to support their customers. Management should consider whether this type
of assistance received from a government meets the definition of a government grant in AASB 120
Accounting for Government Grants and Disclosure of Government Assistance​. The guidance in AASB
120 should be applied to a government grant.

Non financial obligations

Provisions

AASB 137 ​Provisions, Contingent Liabilities and Contingent Assets​ requires a provision to be
recognised only where an entity has a present obligation; it is probable that an outflow of resources is
required to settle the obligation; and a reliable estimate can be made. Management’s actions in
relation to the virus should be accounted for as a provision only to the extent that there is a present
obligation for which the outflow of economic benefits is probable and can be reliably estimated. For
example, a provision for restructuring should be recognised only when there is a detailed formal plan
for the restructuring and management has raised a valid expectation in those affected that the plan
will be implemented.

AASB 137 does not permit provisions for future operating costs or future business recovery costs.

AASB 137 requires that an entity disclose the nature of the obligation and the expected timing of the
outflow of economic benefits.

Onerous contracts

Onerous contracts are those contracts for which the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be received under it. Unavoidable costs
under a contract are the least net cost of exiting the contract (that is, the lower of the cost to exit or
breach the contract and the cost of fulfilling it). Such contracts might include, for example, supply
contracts that the entity is not able to fulfil because of the virus. Management should consider
whether any of its contracts have become onerous.

Contingent assets

One of the steps taken to control the spread of the virus is to require that some businesses close
down temporarily. An entity might have business continuity insurance and be able to recover some or
all of the costs of closing down. Management should consider whether the losses arising from
COVID-19 are covered by its insurance policies. The benefit of such insurance is recognised when
the recovery is virtually certain. This is typically when the insurer has accepted that there is a valid
claim and management is satisfied that the insurer can meet its obligations. The benefit of insurance
is often recognised later than the costs for which it compensates.

Employee benefits and share-based payments

Management should consider whether any of the assumptions used to measure employee benefits
and share based payments should be revised. For example, the yield on high-quality bonds or the
risk-free interest rate in a particular currency might have changed as a result of recent developments
or the probability of an employee meeting the vesting conditions for bonuses or share based
payments might have changed.

Management should consider the impact of any changes made to the terms of, for example, a
share-based payment plan to address the changes in the economic environment and the likelihood
that performance conditions will be met. To the extent that such changes are beneficial to the
employee, they would be accounted for as a modification and an additional expense recognised.
Management should be aware that cancelling a share based payment award even if the vesting
conditions are unlikely to be satisfied results in the immediate recognition of the remaining expense.
Management should also consider whether it has a legal or constructive obligation to its employees in
connection with the virus; for example, sick pay or payments to employees who self-isolate, for which
a liability should be recognised.

Management might be considering reducing its work-force as a result of the virus. AASB 119
Employee Benefits​ requires that a liability for employee termination is recognised at the earlier of
when the entity can no longer withdraw the offer of those benefits or when the costs of a related
restructuring are recognised in accordance with AASB 137.

AASB 2 ​Share-based Payment​ requires that entities explain modifications to share based payments,
along with the incremental fair value granted, as well as information about how the incremental fair
value was determined.

AASB 119 requires extensive disclosure of the assumptions used to estimate employee benefit
liabilities, together with sensitivities and changes in those assumptions.

Income taxes

The virus could affect future profits as a result of direct and indirect (eg. effect on customers,
suppliers, service providers) factors. Asset impairment may also reduce the amount of deferred tax
liabilities (eg. by reducing DTLs in property, plant and equipment or intangible assets) and/or create
additional deductible temporary differences (eg. DTAs on provisions and employee liabilities). Entities
with deferred tax assets should reassess forecast taxable profits and the recoverability of deferred tax
assets in accordance with AASB 112 ​Income Taxes​, taking into account the additional uncertainty
arising from the virus and the steps taken to control it.

Management might also consider whether the impact of the virus affects its plans to distribute profits
from subsidiaries and whether it therefore needs to reconsider the recognition of any deferred tax
liability in connection with undistributed profits.

Management should disclose any significant judgements and estimates made in assessing the
recoverability of deferred tax assets, in accordance with AASB 101.

Breach of covenants

The financial impact of the virus might cause some entities to breach covenants on borrowings or
trigger material adverse change clauses. This could result in loan repayment terms changing and
some loans becoming repayable on demand. Management should consider whether the classification
of loans and other financing liabilities between non-current and current is affected and in extreme
situations whether the entity remains a going concern. Management should consider particularly the
impact of any cross-default clauses. Management should also consider the effect of any changes in
the terms of borrowings as a result of the circumstances described above and treat waivers obtained
after the reporting date as non-adjusting events. Finally, management should consider the impact of
the above on the liquidity risk management disclosures under AASB 7.

Events after the reporting period

The global situation is evolving rapidly. For year ends ​after​ 31 December 2019, management should
consider the requirements of AASB 110 ​Events after the Reporting Period.​ In particular, whether the
developments between year end and signing the financial report provide more information about the
circumstances that existed at the reporting date. Events that provide more information about the
spread of the virus and the related costs might be adjusting events. Events such as the
announcement or enactment of new measures, to contain the virus are now more likely to be
adjusting events up to the signing date. Clear disclosure of non-adjusting events is required when this
is material to the financial statements.

Going concern

Management should consider the potential implications of COVID-19 and the measures taken to
control it when assessing the entity’s ability to continue as a going concern. An entity is no longer a
going concern if management either intends to liquidate the entity or to cease trading, or has no
realistic alternative but to do so. Management should consider the impact of measures taken by
governments and banks in its assessment of going concern. Management should also remember that
events after the reporting date that indicate an entity is no longer a going concern are always
adjusting events.

Material uncertainties that might cast significant doubt upon an entity’s ability to continue as a going
concern should be disclosed in accordance with AASB 101.

Disclosures including financial risk

General disclosures

Management should consider the specific requirements in AASB 101 to disclose significant
accounting policies, the most significant judgements made in applying those accounting policies and
the estimates that are most likely to result in an adjustment to profits in future periods. All of these
disclosures might be different as a result of the impact of the virus. The extent of disclosures
regarding estimation uncertainty might need to be increased. For example, the carrying amount of
more items might be subject to a material change within the next year.

There might be individually significant financial effects of the virus; for example, individually material
expenses such as an impairment or a modification adjustment. In addition to the disclosure
requirements of individual standards, AASB 101 requires that an entity discloses separately on the
face of the income statement or in the notes to the financial statements material items of income or
expense. An entity might also disclose additional line items or sub-totals on the face of the income
statement where this is necessary for an understanding of performance. Management should
consider the specific requirements of AASB 101 if it discloses additional sub-totals. There is also a
requirement in AASB 101 to disclose information relevant to an understanding of the financial
statements that is not otherwise disclosed.

Financial risks

Entities will need to disclose any changes in their financial risks - such as credit risk, liquidity risk,
currency risk and other price risk - or in their objectives, policies and processes for managing those
risks. In particular, additional disclosures about liquidity risk might be needed where the virus has
affected an entity's normal levels of cash inflows from operations or its ability to access cash in other
ways, such as from factoring receivables or supplier finance.
Disclosure outside the financial statements

An entity’s stakeholders will be interested in the impact of the virus and the measures taken to
contain its spread. Continuous disclosure requirements should be considered and previous forward
looking statements may need to be reconsidered. Some stakeholders' needs might be met more
appropriately by disclosure outside the financial statements. Management might consider updating its
analysis of the principal risks and uncertainties. Management should also be on alert for new
disclosure requirements from ASIC, the ASX, APRA or other regulators. For example, the European
Securities and Markets Authority recently stated that “issuers should provide transparency on the
actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and
quantitative assessment on their business activities, financial situation and economic performance in
their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim
financial reporting disclosures."1

Interim financial statements

Many entities may first report the impact of the virus in interim financial statements. The recognition
and measurement guidance described above applies equally to interim financial statements. There
are typically no recognition or measurement exceptions for interim reporting, although management
might have to consider whether the impact of the virus is a discrete event for the purposes of
calculating the expected effective tax rate. AASB 134​ Interim Financial Reporting​ states that there
might be greater use of estimates in interim financial statements, but it requires that the information is
reliable and that all relevant information is disclosed.

Interim financial information usually updates the information in the annual financial statements.
However, AASB 134 requires that an entity shall include in its interim financial report an explanation
of events and transactions that are significant to an understanding of the changes in financial position
and performance of the entity since the end of the last annual reporting period. This implies that
additional disclosure should be given to reflect the financial impact of the virus and the measures
taken to contain it. This disclosure should be entity specific and should reflect each entity’s
circumstances.

Where significant, the disclosures required by paragraph 15B in AASB 134 should be included,
together with:

● the impact on the results, balance sheet and cash flows of the virus and the steps taken to
control the spread
● significant judgements that were not required previously (eg. in connection with expected credit
losses)
● updates to the disclosures of significant estimates, and
● events since the end of the interim period.

1
ESMA, ​ESMA Recommends action by financial market participants for COVID-19 impact​, 11 March 2020, accessed 23
March 2020.
 For more information on this publication please contact:

Matt Graham Regina Fikkers John Dovaston

Partner Partner Partner
02 8266 7560 02 8266 8350 03 8603 3820
matt.graham@pwc.com regina.fikkers@pwc.com john.dovaston@pwc.com

Chris Dodd Ewan Barron Jason Perry

Partner Partner Partner
03 8603 3130 02 8266 1832 03 8603 1032
chris.dodd@pwc.com ewan.barron@pwc.com jason.perry@pwc.com

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